Man Group keeps up pleas to be protected from shorting

Wednesday 24 September 2008 19.01 EDT
First published on Wednesday 24 September 2008 19.01 EDT

Man Group, the world's biggest listed hedge fund, was battling last night to persuade the Financial Services Authority to protect it from short-sellers after the City regulator rebuffed its initial claim.

Man shares jumped almost 3% on the London Stock Exchange on rumours that it would receive the backing of the FSA. And yesterday Man said it was continuing to lobby the FSA with what it said was a strong argument in favour of joining UK banks and insurers on a list of 34 firms whose shares cannot be shorted.

However, it is understood that the FSA rejected Man's pleas before publishing a revised list on Tuesday. The FSA added the fund manager Foreign & Colonial and Aberdeen Asset Management after discussions over the weekend.

Man Group argued that it was an important City institution that deserved protection in volatile markets from short-selling, which aims to profit from a share price fall by selling a stock an investor does not own and buying it back later at a lower price.

Guidance issued by the FSA shows that only banks and insurers, or financial firms that own insurers or deposit-taking banks, could appear on the list. Man Group, which reported profits of more than £1bn last year and has some of the City's highest-paid directors, saw its shares come under pressure following the regulator's ban on shorting financial shares last Friday.

The FSA initially allowed 32 banks and insurers including HSBC, Barclays, Prudential and Norwich Union to gain protection from short-selling. It added F&C to the list after the fund manager argued it could bring down its parent, the insurer Friends Provident, if it was subject to heavy short-selling.

Analysts said Man's business could be hit if it became a target in the days ahead for shorters, many of which are rival hedge funds. Analysts at Investec cut their 2009 earnings forecasts by about 14% and their price target from 650p to 460p. Man's shares finished up 2.5% at 408p.

Man is itself involved in shorting the shares of rival financial firms but has denied the FSA ban would have a material impact on its business, saying it was less dependent on the technique than other alternative asset managers. The company said only 14% of the assets it managed were allocated to strategies vulnerable to the controls on short-selling, compared with a hedge fund industry average of 33%.

Hedge funds have already had a tough year according to figures showing 1 in 10 are receiving performance fees from their funds. Nervousness about the industry was fuelled by comments from the prime minister, Gordon Brown, who said he expected the FSA to adopt tough rules governing short-selling. He refused to be drawn on the nature of the rules or how they would be implemented, but analysts said he was sending the industry a clear signal that it faced a clampdown.

The FSA banned short-selling financial stocks for four months last week, reflecting concerns that the practice was exacerbating confidence-sapping declines in the shares of banks and other institutions. Brown insisted it would not be business as usual whenever the ban was lifted.

A Californian financial services firm has voluntarily opted out of a similar ban by the US securities and exchange commission protecting more than 800 firms from short-sellers. JMP Group is the only firm on the New York Stock Exchange to have opted out. JMP's president, Craig Johnson, said: "It's counter-intuitive to us and to the wonderful free market system we've got in this country." Two Nasdaq-listed firms - Diamond Hill and Greenlight Capital - have also opted out.